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Great Expectations For Research And Capital Spending

Chemical makers surveyed to boost budget on average 5% for new equipment and 2% for R&D

by Marc S. Reisch
March 17, 2014 | A version of this story appeared in Volume 92, Issue 11

Credit: DuPont
People attend a video conference at a DuPont innovation center in Troy, Mich.
This is a photo of a DuPont innovation center with video conference ability.
Credit: DuPont
People attend a video conference at a DuPont innovation center in Troy, Mich.

Last year, DuPont opened three innovation centers that connect customers to the company’s 10,000 scientists and engineers. Douglas W. Muzyka, DuPont’s chief technology officer, calls the centers “portals” to the firm’s global research installations.

The modest facilities, which showcase DuPont technology and include videoconferencing, cost about $1 million each to build. Now numbering 12 in places such as Istanbul, Turkey; Moscow; and Paulina, Brazil, the centers help further what Muzyka calls DuPont’s “distributed R&D model.” Through the centers, customers, academic collaborators, and other partners can access “the full richness and depth of our research capabilities on an even basis worldwide,” he says.

DuPont plans to spend $2.2 billion this year on those research capabilities, which reside at major labs in Wilmington, Del.; Hyderabad, India; Shanghai; and other cities. The firm also plans to spend $1.9 billion this year to build and maintain factories that turn out products based on its research-inspired discoveries.

Like DuPont, other chemical companies invest big in the efforts of their chemists and chemical engineers. Although executives from each firm have their own unique priorities, as a group they expect good times ahead. They are opening their checkbooks and preparing to spend more to support science-generated projects in 2014 than they did last year.

Seven major U.S. and European chemical companies tell C&EN they will lift research spending 2.0% in 2014 to a combined $7.1 billion. The increase follows a 4.4% budget boost in 2013, when the chemical firms spent $6.9 billion on R&D. The spending rise marks the fourth straight year of increases.

R&D spending for the group this year will be up a hefty 65% compared with 2004. After adjusting for inflation, the increase is about 33% over the period. More consistent over that time has been the share of company sales devoted to R&D, which has hovered at about 3.0%.

Twenty U.S. and European firms say they collectively plan to increase spending on new plants and equipment by 4.9% this year to $21.1 billion. Many plan to spend on projects linked to the availability of cheap shale-derived energy and raw materials in the U.S.

The healthy expected rise in capital expenditures follows a more modest 3.0% boost last year to $20.1 billion. An increase in 2014 will mark the fifth year of annual budget growth since investment tanked during the Great Recession.

C&EN predicts that capital spending as a percentage of sales for the 20 firms will be 6.3% this year, up from 6.2% last year. That figure is the high for the past 10 years. The estimate assumes collective sales for the group will increase 3.1% in 2014. The decade low occurred in 2004 when the group spent just 4.5% of sales on equipment.

According to C&EN’s survey, the overall forecast for future-oriented spending is for better times ahead. For the seven firms—Albemarle, BASF, Cytec Industries, Dow Chemical, DuPont, W.R. Grace, and Solvay—that supplied both R&D and capital spending data, combined budgets in 2013 will increase 5.6% to $19.7 billion.

The increase outpaces the rate of inflation and shows the group’s continued confidence in the chemical business. Combined, the future-oriented spending budgets rose a modest 3.0% last year, but in 2010, 2011, and 2012, they rose 4.5%, 23.4%, and 9.8%, respectively, after a 12.0% drop in the recession year of 2009.

The ratio of investment in new production facilities to investment in R&D for firms that supplied both numbers will be higher this year than in 2013. Budgets for 2014 devote 64.1% of funds to capital projects, the high for the decade. The low for the decade was 55.6% in 2009, when economic concerns froze many new projects.

Because R&D spending doesn’t fluctuate as widely as capital spending does, R&D gets a proportionately smaller share of future-oriented budgets when firms go on a building binge. This year, 35.9% of future-oriented spending is devoted to research, the low for the decade. The decade high of 44.4% in 2009 resulted from managers protecting R&D budgets as they slashed capital spending during the economic slowdown.

Of the surveyed companies, Cytec plans the largest percentage increase in R&D spending, 8.2%, in 2014. The increase supports the firm’s aerospace materials and process separations businesses. BASF, which is the chemical industry’s largest R&D spender, will continue its series of aggressive budget increases with a 5.4% rise in 2014.

Dow plans the largest increase in capital outlays, in terms of both dollars, more than $1 billion, and percentage, 47.7%. The firm says the increase is intended to build on access to low-cost shale gas at its U.S. Gulf Coast installations.


The main trade association for U.S. chemical makers, the American Chemistry Council, predicts higher R&D budget growth than does C&EN’s survey. Looking at both chemicals and pharmaceuticals, ACC anticipates a 2.5% increase in U.S. research spending this year to $58.3 billion, compared with the 2.0% increase forecast in C&EN’s survey, which does not include pharmaceuticals.

The association’s economists also predict that global chemical capital spending will increase 6.6% in 2014 to $467.7 billion and that capital spending in the U.S. will increase 9.0% to $46.2 billion, thanks largely to shale gas. In contrast, companies surveyed by C&EN are planning a 4.9% increase in capital outlays.

Battelle, the nonprofit research group, annually reviews global R&D spending across all industries. It predicts spending will reach $1.6 trillion this year, up 3.9% from the year before.

The group’s “2014 Global R&D Funding Forecast,” put together with R&D Magazine, also predicts that industrial R&D funding in the U.S. will reach $303 billion, up 4.1%. However, Battelle’s forecasters expect U.S. chemical and advanced materials makers will increase R&D at a slower 3.6% pace to $12.2 billion in 2014.

Battelle forecasters point out that such R&D investments will continue to foster intellectual property development and, along with it, new materials that bring robust profit margins. For R&D leaders such as DuPont’s Muzyka, those are the sorts of investments that create value through science.  

Two graphs showing plant and equipment spending for 20 surveyed chemical firms in both dollars and as percentage of sales.
Plant and equipment spending will rise for the fifth consecutive year and peak at 6.3% of sales. NOTE: Values are for the 20 chemical firms listed in the capital investments table on page 23. SOURCE: C&EN surveys and estimates
Two graphs showing R&D spending for seven chemical firms surveyed by C&EN, as both dollars and as a percentage of sales.
R&D spending continues upward momentum but will stay steady as a percent of sales. NOTE: Values are for the seven chemical firms listed in the research costs table on page 23. SOURCES: C&EN surveys and estimates, White House Office of Management & Budget


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